Global Business

Citi Settles Argentina Accusations

But the bank will pay no financial penalty even though the SEC says it improperly accounted for several aspects of its dealings with the South Amer...
Stephen TaubJune 16, 2008

Citigroup Inc. has agreed to settle Securities and Exchange Commission charges of improperly accounting for the impact of the economic and political crisis in Argentina on its operations during the fourth quarter of 2001.

The banking giant did not admit or deny the accusations, and under the settlement agreement it will not pay a financial penalty.

According to the SEC, if Citigroup had properly accounted for four Argentina-related items in conformity with generally accepted accounting principles, it would have recorded additional pre-tax charges of at least $479 million, or $311 million after taxes, which would have reduced fourth-quarter 2001 earnings by more than 8 percent.

In 2001 and 2002, according to the SEC, Argentina experienced a severe economic and political crisis during which, among other things, its government defaulted on sovereign debt obligations, devalued its currency, and abandoned the one-to-one ratio between the Argentine peso and the U.S. dollar.

According to the SEC, items Citigroup should have accounted for differently included the impact of its participation in a government-sponsored exchange of Argentine government bonds for loans; the value of Argentine government bonds held by Citigroup that were not eligible for the bond swap; the sale of Banco Bansud, the Argentine subsidiary of Banco Nacional de Mexico, S.A. (Banamex), which Citigroup had acquired in August 2001; and the impact of government actions that resulted in the conversion of over $1 billion of Citigroup loans from dollars to Argentine pesos.

“Citigroup accounted for each of these items in a manner that did not conform with generally accepted accounting principles and thereby overstated its income,” the SEC asserted.

The SEC said Citi violated reporting, record-keeping, and internal accounting controls provisions of the Securities and Exchange Act.